The art and magic of simplifying your finances
Want to know a secret to feeling more peaceful and in control with your money? Simplify your finances. And the best way to do this is to limit the number of accounts you have. Simpler is better.
Over the years, I’ve seen just about everything. When new clients come in, one of the first things we do after they share their story is draw a picture of all their accounts and how the money flows. I’ve seen people with three checking accounts, four credit card accounts and three savings accounts — at multiple banks. It’s not uncommon.
Sometimes multiple accounts are a left over from a past relationship. (Divorce?) Other times people purposefully set up multiple accounts in an effort to manage their finances. “I’ll pay the mortgage from this account and my car and other bills from here. And this checking account is for fun….” And then they divide up the money among accounts- and then commence to move it around when it doesn’t quite work….
Other times it just feels like accounts breed behind our backs- sometimes from offers from banks. We want to be smart and get the better interest bearing account, so we open a new one….
I find that people are truly trying to do the best they can.
So here’s the deal: for many people the more accounts you have- the more money fog you are likely in. And the harder it is to plan what you want to do with your money. Simpler is better. Period.
People who are successful with money- who feel good about their finances and feel in “control” of their money– often have one checking account and one primary savings account linked to it. Then they have one credit card account.
One. The power of one.
One checking account. One savings account. One credit account.
In fact, studies show that people with multiple credit cards are often in danger of overextending and having late payments. The most successful/ high credit scores are actually owned by people that use one card. Two at the most. Multiple cards are often taken as a warning sign by credit institutions. It’s simply a lot to juggle, and banks know this.
And no matter what- the more accounts you spend out of, the harder it is to see what you spend.
So- can you close some accounts?
Multiple accounts are simply not worth the time and attention they take. Think of it like spring cleaning. Time to clean out the wardrobe, redo the insides of that kitchen cabinet, and rethink what accounts you want to use.
In the simplest, sanest and happiest of all worlds, primarily use one account- your checking account. Befriend your debit card. It’s very easy. (And as I’ve written about before, people spend more when they use credit as opposed to debit. It’s a brain thing- it’s very difficult to avoid overspending when you use a credit card because you simply don’t feel it in the same way. I’m not saying to not possess a credit card. You can use it for large purchases and then pay it off. But it will be easier to do if you only have one credit card, and you seldom use it. And if you have one primary checking account, you can clearly see that you have the money to pay it off.)
But if you do use a credit card, use one card. That will simplify things immensely.
One is a magic number. Anxiety goes down with fewer places to look. Life calms down.
So, is it time to simplify things?